US Dollar undergoes seismic shift with DXY down 3% in worst week since 2022

• The US Dollar is facing its worst week in over one year.  
• Traders pull their money out of the Greenback and into domestic currencies.
• The US Dollar Index faces devastation and devalues over 3% so far this week. 

The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, is facing a pivotal change in its trading regime this week. The index trades near 104.00 at the time of writing on Thursday. Several banks and traders are reporting that big clients are repatriating their foreign investments denominated in US Dollars back into their domestic currencies. This might mean such volumes will not come back anytime soon, the FT reports. 

The repatriation comes after weakening US economic data which has worried markets about the possibility of  Trump’s tariffs having an impact on domestic inflation and has brought back firm recession fears this week. Clearly, United States (US) President Donald Trump’s approach is starting to have some negative fallout. 

Meanwhile, the focus will now shift to Europe where a high-stakes European meeting is taking place this Thursday. EU leaders will discuss the spending bill on defense after Trump made clear the US will no longer be playing an active part in NATO. US support to Ukraine has been rolled back by now as well. The European Central Bank (ECB) is set to release its monetary policy statement and interest rate decision later this Thursday. 

Daily digest market movers: ECB to make its move

• The US Challenger Job Cuts were due for February. A very negative number with a surge by more than 100% to 172,017 head counts compared to 49,795 last month. 
• At 13:15 GMT, the European Central Bank (ECB) will release its monetary policy decision. Expectations are for an interest rate cut by 25 basis points (bps) from 2.75% to 2.50% on its benchmark deposit rate.
• At 13:30 GMT,  the US weekly Jobless Claims and US Trade Balance data for January will be released:
  • Initial claims for the week ending on February 28 are expected to come in at 235,000, lower than last week’s print of 242,000. Continuing Claims for the week ending on February 21 should tick up to 1.880 million, from the previous 1.862 million. 
  • The US Goods Trade Balance for January should see a narrowing deficit to $127.4 billion, coming from a $153.3 billion wider deficit in December.
• At 13:45 GMT, ECB Chairman Christine Lagarde will speak and give comments on the latest monetary policy decision.
• Equities are struggling again after the German Dax hit a new all-time high in the early European trading session. European equities and US futures are reversing and turning negative at the time of writing. 
• The CME Fedwatch Tool projects a 79,6% chance of an interest rate cut in the June meeting, with only a 20.4% chance to keep interest rates at the current range of 4.25%-4.50% in June. 
• The US 10-year yield trades around 4.230%, off its near five-month low of 4.10% printed on Tuesday.

US Dollar Index Technical Analysis: Not coming back

The US Dollar Index (DXY) is bleeding this week, and the reason for the outflows is worrisome. Several trading desks report that many European pension funds, hedge funds, and other big institutions are repatriating their US Dollar-denominated assets back to their domestic currencies. That means a substantial volume parked for years under the US Dollar has now been moved and does not seem to be coming back anytime soon as long these recession fears will still take place. 

On the upside,  the first upside target is to recover the 200-day Simple Moving Average (SMA) at 105.04. Once that level has been recovered, several near-term resistances are lined up, with 105.53 and 105.89 identified as two heavy pivotal levels before breaking back above 106.00.

On the downside, 104.00 has seen selling pressure but tries to hold for now. Further down, 103.00 could be considered as a bearish target in case US yields roll off again, with even 101.90 not unthinkable if markets further capitulate on their long-term US Dollar holdings. 

US Dollar Index: Daily Chart